By Allison Evans, staff editor, March 01, 2012
One of the most desired aspirations of any business is ensuring that it runs like a well-oiled machine. When that business is a dermatology practice, any malfunctions in the gears — due to inefficiencies, error, or otherwise — can jeopardize patient care and result in lost revenue. Therefore, it’s important that dermatologists take the time to review all the components that make their practice work and do what they can to optimize office processes, including scheduling, billing and collections, human resources, and IT, among others.
Depending on practice size and profitability, outsourcing may be a desirable option for keeping a practice running smoothly and efficiently.
Financial considerations: 'Make vs. buy’
David Wagener, founder and president of Advanced Dermatology Management, Inc., a physician practice management company in Miami Gardens, Fla., said that when dermatologists are deciding what’s appropriate to outsource in their practice they are “basically performing the make vs. buy’ decision described in business school curriculum.” Wagener is also chief executive officer of Skin & Cancer Associates.
Before outsourcing anything, it’s important to compare the cost of keeping the function in-house to hiring an external party to take over. When calculating the in-house expenses, remember to factor in both the hard and soft costs, including each employee’s benefit package and salary.
There are also less obvious costs, such as the expense of licensing computer software, and even the cost of the physical space occupied by the employee. “If you bring [the service] internally, do you have the space for that function, because there is a cost to the space,” said Barry Leshin, MD, a dermatologist who has been practicing for 25 years and works in a single-specialty group practice in Winston-Salem, N.C. Dr. Leshin said all of these tangible and intangible costs must be added up before an apples-to-apples comparison can be made.[pagebreak]
Much ado about billing
Before deciding to outsource billing, practices need to assess their ability to bill and collect effectively, Dr. Leshin said. He also noted that the decision to outsource billing often depends upon the size of the practice. “If a practice is small, it may be most economical to outsource it,” he said. As practices grow, they may have the means to hire a support staff to handle billing and collections.
Because of its complexity, billing is one of the most commonly outsourced services, said Sharon Andrews, owner and senior consultant of DermResources, a dermatology consulting company. She offered advice for those who choose to tackle in-house billing. “The primary requirement is a person who fully understands the billing process and who thrives on attention to detail,” Andrews said. Another important factor to consider before a practice undertakes billing is if the practice has a practice management system that is capable of sending claims electronically and providing reports that allow the biller to constantly follow up on outstanding claims, Andrews said. It’s also important that the person in charge of billing has a quiet place to work, she recommended.
There are both advantages and disadvantages to outsourcing billing to a third-party company.
Wagener cited external billing companies as a primary example of a service that can be outsourced with quality and effectiveness. “Billing and collection is their core competency — it’s what they do, and if they’re going to stay in business, they have to do it well.” It can be difficult for small medical practices to maintain a high level of competency in billing and other business operations because they are so dependent on having people show up to work each day, Wagener noted. “Even one person leaving a practice or becoming ill can be crippling,” he said. If practices don’t want the added pressure of ensuring employee attendance or training enough back-up employees, the cost of outsourcing may be worth the relief.
Dr. Leshin, who also outsourced billing, preferred to use a specialty-specific billing company. “A billing and collections apparatus that is not specialty-specific really is disadvantaged. They may not be doing quite as good a job for you as someone who is specialty-focused,” he cautioned.
It’s good to remember, however, that the interests of the dermatologist and the outside company may differ. “If you’re relying on someone outside, they may not be as focused on your practice as you will be,” he said.
Working with any external billing team forces practices to cede some amount of control; however, the line between relinquishing control and losing control may be a fine one if practices have not done the research beforehand.
When to stick with HR professionals
Human resources is another commonly outsourced service. “For a large practice with a big staff, it is a very time-consuming area for practice administrators,” said Dr. Leshin, whose group practice only outsources payroll. For practices that want to do their own payroll and paycheck preparation, there is very good software available for purchase. But more often than not, working with a third party is the most hassle-free option.
“It can be as limited as hiring a company to process payroll and deliver paychecks, to turning the entire job of being an employer over to a professional employer organization (PEO), or co-employer, who will literally be the employer of record,” Wagener said. In this arrangement, the PEO provides a range of integrated services, such as payroll, recruiting, and benefits administration. PEOs can save medical practices many revenue-loss pitfalls if a practice is willing to surrender control.
Get the financial picture
Many physicians prefer to outsource their accounting. “Our accountant is not just used for tax return purposes,” Dr. Leshin said. “He also generates monthly financial statements for us and a monthly calculation of physician compensation according to our compensation plan,” he said.
Dr. Leshin’s practice exports all its financial data to the accounting firm, which then provides the practice with reports that allow them to analyze financial data, such as profit and loss, accounts receivable, and charges and collections. These reports provide the most up-to-date financial picture so that the practice can make better-informed business decisions.[pagebreak]
Other outsourcing options
While billing and human resources may be the most frequently outsourced tasks, dermatologists noted other services that can be accomplished via outsourcing. Dr. Leshin’s practice hires a specialist to negotiate managed care contracts. “He has relationships with all of the insurance companies and the people who generate these contracts to better facilitate the negotiation process,” he said. Because the contract specialist has many industry relationships and a wealth of knowledge regarding current terms and rates, the practice is better able to understand their goals in the negotiation process, Dr. Leshin said.
With EHR adoption rates on the rise, information technology (IT) can be another advantageous service to outsource, which Wagener noted was really nothing new.
“Software as a service in an application service provider (ASP) model was popular but waned as powerful computers became more affordable and software evolved. Now it is called cloud computing’ when the Internet, not a dedicated connection, provides the backbone. In today’s era of big data,’ high speed Internet access, server virtualization, backup, and security requirements, ASPs are again gaining popularity,” Wagener said.
Dr. Leshin’s practice originally outsourced IT, but they eventually discovered that the most effective solution for the practice was to hire a part-time IT employee. He noted the advantages of having an IT person on staff. “We have someone who knows our staff ... he knows the systems that we all use. It’s not like every time you call for help you get a different person at the help desk.” The potential downside to this option is that practices may have a hard time finding someone to work part-time.
Dermatologists can also employ outsourcing to help brand or enhance their business. According to Andrews, dermatology practices that want to expand the cosmetic side of the practice, or already do a fair amount of business in cosmetics, should have a good team for marketing and public relations. Consultancy agencies offer services such as email blasts, Web design, and print and direct mail promotions. These services can be beneficial in urban areas, particularly in competitive environments where marketing is the best way to skyrocket a practice into the public eye.
Understanding third-party commitments
Before committing to a consulting agency, dermatology practices need to understand exactly how third parties work. In the case of billing companies, they usually work on a percentage of their collections. In theory, this motivates them to collect as much as possible, said Wagener. However, they are also businesses and want to spend as little as possible doing it. “In difficult collection cases, they face a situation where it’s possible to spend more working an account then they will ever earn in fees, and there is a natural tendency to push those claims aside by returning them to the client or referring them to a collection agency who will charge 3550 percent to collect,” Wagener said.
Making a well-informed decision
Arguably, the most important decision for a practice, once they decide to outsource, is determining which company to hire. Before making any decisions, read each contract thoroughly and speak with current clients, advised Andrews, so that you know what to expect.
Dr. Leshin outlined some key questions to consider. “The questions that need to be asked [of companies] are: What is your experience with dermatology practices? What is your experience with practices of this size? Who can I call for references? I think checking references is fundamentally important.”
Beyond looking for companies that specialize in dermatology practices, it can go a step further, Dr. Leshin said. “Say you have a cosmetic practice. Is an outside consultant accustomed to dealing with cosmetic practices? Because some of the issues are different,” he said. Dermatologists need to have a complete picture of what their practice needs to function efficiently and then find a company who can meet those needs.
Andrews highly recommends that dermatology practices have a practice manager or administrator. “To function efficiently, a practice needs a person who is always available to give direction, deal with problems, deal with people outside the practice, and pitch in when needed,” she said. In fact, DermResources is so adamant about this point that they will not sign a contract for a practice startup service if the practice is not planning on hiring a practice administrator.
Discover your resources
“There are plenty of resources to be found on the Academy website at aad.org.” said Barry Leshin, MD, “People really don’t take advantage of what the Academy has to offer them along these lines. There’s so much material that the Academy has on their website and for sale that helps people with practice management issues.”
Provides dermatologists with practical, money-saving solutions for personal and professional stability. For a complete listing of resources, visit www.aad.org/member-tools-and-benefits/practice-management-resources/dermsource. Offerings include:
- AAD Advantage: A member buying program that saves money, increases office efficiency, and consolidates purchasing.
- Financial Connection: Secure substantial savings on financial services like practice financing, equipment leasing, and credit card acceptance.
- AADDermsOnline: Purchase professional website development and hosting services at discounted rates.
Don’t forget about the many practice management resources available for purchase at the AAD online store, www.aad.org/store, including the following:
- Dermatology Employment Manual
- Office Policy and Procedures Manual
- Starting and Marketing a Dermatology Practice Manual